BIR Ruling No. 189-82

June 3, 1982 BIR RULING NO. 189-82 24 (a) 000-00 189-82 Ayala Investment & Development Corporation 5th Floor, Makati Stock Exchange Building Ayala Avenue, Makati, Metro Manila Attention: Mr . Manuel L . Garcia, Jr . Assistant Vice President Mr . Michael J . Mendoza Manager Gentlemen : This refers to your letter dated January 21, 1982 relative to BIR Ruling No. 24-a-000-00-85-81 to the effect that Good Earth Emporium & Supermarket, Inc. (GEE) cannot be held liable for the payment of the 35% transaction tax on commercial papers issued after Sec. 210(b) of the Tax Code, imposing the said 35% tax was repealed by PD No. 1739 on September 17, 1980. cdta You stated that the aforesaid ruling was in reply to GEE's letter of March 20, 1981 concerning the post-tax portion of the P50M loan syndicated by you for the construction of the GEE Annex Building. However, you pointed out that all the agreements covering the said loan were signed and executed before September 17, 1980 and that the loan contracts provide for staggered loan drawdowns which were fixed and agreed upon on a firm and irrevocable basis as of the dates of the documents so that some drawdowns were made after September 17, 1980. It appears also that the loan package was instrumented via commercial papers under the post-tax structure wherein GEE undertook the payment of the 35% transaction tax. Despite the repeal of Sec. 210(b) of the Tax Code by PD 1739, you and GEE request that payment of the 35% transaction tax be continued until the expiration of the above loan, inasmuch as the loan was contracted even before PD 1739. In reply, I have the honor to inform you that the repealed provisions of Section 210(b) of the Tax Code read as follows: " Commercial paper transaction . There shall be levied, assessed, collected and paid on every commercial paper issued in the primary market as principal instrument, a transaction tax equivalent to thirty-five per cent (35%) based on the gross amount of interest thereto as defined hereunder, which shall be paid by the borrower/issuer: Provided, however , That in the case of a long-term commercial paper whose maturity exceeds one year, the borrower shall pay the tax based on the amount of interest corresponding to one year, and thereafter shall pay the tax upon accrual or actual payment (whichever is earlier) of the untaxed portion of the interest which corresponds to a period not exceeding one year. cd The transaction tax imposed in this section shall be a final tax to be paid by the borrower and shall be allowed as a deductible item for purposes of computing the borrower's taxable income." Under the above-quoted provision, it seems clear that the 35% transaction tax is due upon the issuance of the commercial papers. (Section 2, Revenue Regulations No. 7-77) Consequently, interest earned on short-term commercial paper issued before the repeal of the above provision on September 17, 1980 is subject to the 35% transaction tax, even if the note matures after said date. In the case of a long-term commercial paper issued prior to September 17, 1980 and maturing thereafter for over one (1) year, the 35% transaction tax shall be paid by the borrower based on the interest for the first year. Thereafter, if the untaxed portion of the interest accrued or was actually paid after September 17, 1980, the same shall be subject to the 20% final tax to be paid by the lender/placer in accordance with P.D. No. 1739. cdtech Very truly yours, RUBEN B. ANCHETA Acting Commissioner